Lua is not a classic interpreter; source code is compiled to binary form and then executed, which the luac tool will do explicitly for you. Without the compiler, the Lua VM is then only about 40K. The binary code can be converted into C strings and compiled directly into your application, which is necessary if you do not actually have a file system.
eLua is a project dedicated to Lua running 'unhosted' on embedded processors. The author says "I recommend at least 256k of Flash .. and at least 64k of RAM', although this is for floating-point support. The fact that Lua can be complied to use a different numerical type is very useful here, because many microprocessors have no built-in floating support.
The LNUM patch by Asko Kauppi allows you to have the best of both worlds, by allowing both integer and floating-point types to coexist in Lua. This works very well on the ARM-based processors on Gumstix boards.